The Morning Call
4/22/19
I am taking the weekend off.
Here is Monday morning’s notes.
The
Market
Technical
Even
though the S&P was up on Thursday, it still failed to trade back above the
lower boundary of its very short term uptrend, voiding that trend (the Dow
remained above the lower boundary of its very short term uptrend). The good news in that pin action is that it, at
least, closed last Friday’s gap up open; though that big April 1st
gap up open is still hanging out there, waiting to be filled (the Dow has the
same problem). However, as you can see,
closing that gap will do almost no technical damage to the S&P chart and
certainly wouldn’t raise concerns about anything other than a minor retreat.
Technically
speaking, last week, the long bond performed as close to perfect as possible,
i.e. it closed March’s big gap up open, traded down to the lower boundary of
its very short term uptrend and then bounced hard on huge volume. That clearly is a challenge to the stronger
growth/higher interest rate narrative.
On
Thursday, the dollar succeeded in trading above its prior high---which you will
recall, in my opinion, was the only real technical negative in its chart, minor
as it may have been. The only problem is
that it did so on a gap up open. And you
know what that means. It will likely be
closed.
GLD’s
chart is breaking down. On Thursday, the
100 DMA reverted to resistance and the neck line of the head shoulders pattern
confirmed its break. The downside price
objective is now seven points lower.
The
VIX had a rough week, with its chart remaining quite negative (below both MA’s
and in a very short term downtrend). As I
noted last week, normally, that would suggest further upside for stocks. However, on Wednesday, it traded down to the
lower boundary of its short term trading range and bounced. Then Thursday, it headed down again seemingly
preparing for another challenge of that lower boundary---which it may well
do. But as I also noted last week, the
VIX is near historic lows; so, any further decline will put it even closer to
major, major support and suggests stock prices are getting stretched to the
upside. That doesn’t mean that they
can’t eventually go higher, even much higher; but it likely means that some
consolidation in which the VIX returns to more normal levels before stocks
experience any meaningful move up.
Bottom
line: taking the pin action in the S&P and the VIX together, it seems
reasonable to me to see some very short term weakness in stock prices. However, I still believe that the S&P
will challenge its all-time high.
I
am back to being a bit confused by the price action of the other indicators
that I follow. The dollar is likely up because investors believe that the US
economy will gain strength---that or they at looking to the US as a safe
haven. The long bond has been hinting at
the stronger economy/higher interest rate narrative; but the chart needs to
break in order to confirm that, at least, in my mind. Friday’s advance on huge volume suggests
otherwise. Gold usually goes down on a
strong dollar and higher interest rates; but bond investors don’t seem to have
bought into that scenario.
Last
Thursday in the charts.
Fundamental
Headlines
The dataflow
last week was neutral though the primary indicators were negative (March
housing starts/permits [-], industrial production [-], retail sales [+],
leading economic indicators [0]). I rate
the week a negative. Score: in the last 184
weeks, fifty-nine positive, eighty-four and forty-one neutral.
This is the
third consecutive week in which the overall data was neutral and that supports the
notion that the numbers have ceased declining.
Nevertheless, a week of negative primary indicators can’t be
ignored. I still believe that the stats
will improve as we go into the second quarter.
Indeed, I want the data to improve.
That is in my forecast. However,
this week’s results don’t help the cause.
The
stats from the rest of world were slightly negative despite the current upbeat
trend in Chinese data. As I noted last
week, my skepticism notwithstanding, most investors are accepting these numbers
at face value; so, it would be foolish of me not to assume the odds are that I
am wrong. That said, given how large
trade is as a component of Chinese GDP, at some point, all this positive
Chinese economic activity has to show up in some other country’s numbers. So far, it hasn’t.
Default problems
in China.
Growth problems
in Europe.
Importantly from
a Market standpoint, this dataflow has yet to comport with the increasingly
cited narrative of a global economic recovery and higher interest rates. That doesn’t mean that it won’t eventually;
but right now, the burden of proof is on the optimists.
The
trade news last week wasn’t all that great.
While it appears that there will be a US/China trade agreement, it has
apparently been watered down sufficiently to not really accomplish much with
respect to correcting the inequities in Chinese industrial policy and IP
theft. That said, we don’t know the
provisions; so, I withhold judgment.
On another
front, the US and EU are preparing to negotiate new terms to the current trade
agreement. As you might expect where
Trump is involved, the preamble was an exchange of threats---though given NAFTA
and the current outline of the US/China trade agreement, that probably doesn’t
mean much.
News on Stocks in Our Portfolios
Revenue of $4.74B (+3.3% Y/Y) misses by $50M.
Revenue of $7.88B (+0.6% Y/Y) beats by $60M.
Economics
This Week’s Data
US
International
Other
Cass
Freight Shipment Index declines for fourth month in a row.
The
Japanification of the US economy.
What
I am reading today
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